Published on January 9th, 2014 | by Giles Parkinson0
Deutsche Bank Lifts Global Solar Forecasts
Leading investment house Deutsche Bank has dramatically lifted its demand forecasts for the global solar industry – predicting that 46 gigawatts (GW) of solar PV will be installed across the world in 2014, before jumping by another 25 per cent to 56GW in 2015.
It notes that the world’s three biggest solar markets – co-incidentally located in the world’s three biggest economies, US, China and Japan – are currently booming and are likely to deliver what market analysts describe as more “upside demand surprises.”
But it also points to other countries such as India, Australia, South Africa, Mexico, as well as regions in the Middle East, South America and South East Asia, to act as strong growth contributors.
“The majority of these markets are at grid parity and as such sustainable,” the analysts write. “Moreover, we believe some of the grid and financing constraints that have inhibited growth so far are set to improve in 2014.”
Deutsche Bank cited 5 principal reasons for its raised forecasts – which if occur would show that the global solar PV market will have nearly doubled from 2012 to 2015.
The first is the spread of grid parity – where the cost of solar is cheaper for homes and businesses than retail rates of electricity. Deutsche says solar is currently competitive without subsidies in at least 19 markets globally and it expects more markets to reach grid parity in 2014 as solar system prices decline further.
Here’s a graph to illustrate that grid parity claim.
The other reasons cited by Deutsche were:
- US based distributed generation business models set to become more pervasive in international markets and act as a significant growth catalyst in European markets that have significantly scaled back subsidies.
- Financing costs and availability for the solar sector are set to improve from 2014 – it noted that sufficient access to low cost financing has been a significant constraint inhibiting the growth of global solar sector so far.
- It expects downstream solar companies to participate in the “gold rush” to acquire solar customers at an accelerated pace. “Just like upstream/midstream solar companies participated in the gold rush to add manufacturing capacity during the 2005-07 timeframe, we expect another gold rush to add recurring MW over the next 2-3 years “until the (US investment tax credit) expires around 2016.
- While the past 5 years were above module cost reduction, the next 3 years would be about reductions in the balance of systems costs. This includes includes the cost of inverters, hardware, customer acquisition and financing costs.
Deutsche says its base case demand estimate assumes the Japanese market increases from around 7GW in 2013 to around 8GW in 2014, the US market increases from 6GW in 2013 to 8GW in 2014 and the China market increases from 8GW to around 12GW.
We expect Europe to account for 7 to 8GW of installations and international markets to account for around 12-17GW of demand.
“Specifically within international markets, we expect India, South Africa, South America, South East Asia, Australia and other emerging markets to each contribute to over 1 GW per market. See separate story for a précis on the Australian market).
Deutsche cited system prices, financing costs and the policy outlook to act as increasing tailwinds for the solar sector over the next 12-18 months.
“Solar module prices are likely to remain at record low levels for the next 18 months and beyond that timeframe, we see some inflationary pressures driving prices higher,” it writes.
“While balance of system costs have room to decline further, we expect a rapid decline in these costs over the next 18 months and then expect inflationary wage pressures on overall costs.
“Along the same lines, while overall financing costs have room to decline as solar moves down the risk curve and innovative financing structures drive down costs, we expect rising global interest rate environment from 2015 timeframe to drive upward pressure on overall financing costs.
“Bottom line: we expect solar LCOE to reach a cash bottom over the next 18-24 months and expect a rush for installations during the corresponding period.”